Filling Chapter 13 Even Without Getting a Discharge of Your Debts

A recent blog post discussed how usually you would have to wait four years between filing a Chapter 7 “straight bankruptcy” and a subsequent Chapter 13 “adjustment of debts” one. But that’s only if you need to get a “discharge” of your debts. There are reasons to file a new Chapter 13 case even if you don’t get a “discharge” of your debts.

The Overall Reason for Filing an Early Chapter 13 Case

Why would you file a bankruptcy case, whether under Chapter 7 or 13, if you’re not going to get a discharge of some or all of your debts?

It’s because another big reason for filing bankruptcy, particularly under Chapter 13, is to stop your creditors from chasing you and your assets. Bankruptcy-and again particularly Chapter 13-buys you protection and buys you time. In situations where you have debts that cannot be discharged, and/or ones that you are under great pressure to pay, getting protection and buying time can be absolutely critical.

The Situations This Occurs

In unusual situations, you may file a Chapter 7 case but then need the additional help of a Chapter 13 case soon after.

Usually when filing a Chapter 7 case, your attorney can tell you with quite high reliability whether any particular debt will be discharged in that case or not. But sometimes there is a debt that was on the fence, because of ambiguities in the facts or the law there was some doubt whether the debt was going to be discharged. So you may continue to owe a debt you expected to discharge but now you continue to owe.

Or maybe you filed your Chapter 7 case without using an experienced bankruptcy attorney, or without using any attorney at all, with the result that you unexpectedly continue to owe a significant debt or two.

Or you find out that a debt that you knew couldn’t be discharged is much larger than expected—such as an income tax after an audit, or liabilities from a drunk driving accident after the trial.

Or, you unexpectedly become liable, after your Chapter 7 case was filed, on new debt that can’t be discharged, such as a newly accrued child support or mortgage arrearages.

Finally, you may have fully expected to owe a debt or two but thought that you could settle with the creditors or arrange to make reasonable monthly payments—such as on income taxes. But now you find out either that your financial circumstances have deteriorated so you can’t pay as much as you’d expected, or the creditor is simply being unreasonable.

Reasons for a Filing Chapter 13 Case Before Being Able to Discharge Debts:

…Income Taxes

Newer taxes that cannot be discharged in a Chapter 7 case can be paid in a Chapter 13 plan under very favorable terms. Usually you don’t pay ongoing interest and penalties, and previously accrued penalties are discharged. Payments are based on what you can genuinely afford. Plus that payment can adjust to future changes in your circumstances. The tax authorities have to wait their turn in line behind other pressing debts, such as your mortgage arrearage or child/spousal support.

…Child and Spousal Support

If you fall behind on support obligations, your ex-spouse and the support enforcement agencies can be very aggressive, in way that Chapter 7 cannot protect you against. Chapter 13 CAN stop them, and give you 3 to 5 years to catch up.

…Mortgage Arrearages

If you were already behind on your mortgage payments, or fell behind during your Chapter 7 case, Chapter 13 can give you as much as 5 years to cure that arrearage. That can be crucial because it does not take much time to pile up a huge arrearage, and you may well need all the time you can get. You may also be able to arrange to sell your home a couple years down the line when it’s better for your family or personal circumstances—or because your home’s value has increased.

…Vehicle Arrearages or “Cramdown”

Chapter 7 almost always only gives you a couple months to bring your vehicle loan(s) current, or else risk repossession. Chapter 13 usually gives you many months, even years, to get current. And if you qualify for “cramdown”—if your loan is more than 2 and half years old and you owe more than the value of the vehicle—you may not even need to catch up. Instead you may be able to lower both the monthly payments and the total amount you pay for the vehicle.

…Student Loans

You may not be able to qualify for an “undue hardship” discharge now, but because of a worsening medical condition or other circumstances you may be able to qualify later. Chapter 13 would buy you time until then, likely enabling you to avoid making student loan payments in the meantime. Although you are required during the course of a Chapter 13 case to pay all “priority” taxes and support arrearages, there is generally no obligation to make student loan payments.

Conclusion

If you are in the Dallas-Fort Worth Metroplex let me help you determine if a Chapter 13 is right for you and your circumstances. I’m Carrie Weir, a Texas bankruptcy attorney serving especially the area around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please get in touch with me for a free and confidential consultation. Call 972-772-3083 or use the contact form here. Thank you for visiting my website.